Yahoo’s shrinking share of a growing pie

Yahoo Inc.
/quotes/zigman/59898/quotes/nls/yhooYHOO is slashing jobs in hopes to become a leaner, meaner competitor. But there’s just one big problem: the company’s share of it key market has shrunk – and is expected to keep shrinking.

The Web portal’s share of the $32 billion U.S. online advertising fell to 9.5% in 2011, according to data from eMarketer. That’s dramatically smaller than in 2009, when Yahoo’s share reached roughly 16%.

And there’s more grim news for the company. The online advertising market is expected to grow 23% to about $40 billion this year – but Yahoo’s not going to cash in on much of that growth. The company’s share of revenue will fall further to a little over 7%, eMarketer said.

The display market in the U.S. which covers such areas as online video, sponsorships, rich media and banner ads, grew 25% to $12.4 billion in 2011, and is on pace to reach $15.4 billion this year.

But again, Yahoo’s numbers are headed the wrong way. The company’s share of the U.S. display market is expected to fall to 9.1% this year, from about 11% in 2011. Just four years ago in 2008, Yahoo owned 18% of that market.

These trends underline a major dilemma for the company. Analysts say the cost cutting is needed, but in the Internet industry, human resources – particularly the engineers working to develop a platform — are a key asset.

With rivals, led by Google Inc. and Facebook, pulling away, and attracting the best of the industry, Yahoo faces serious challenges.

“You need your people to catch up to competition,” BGC Partners analyst Colin Gillis said in an interview. “Your people need to be better than the competition. They can’t be just as good.”

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